Richard Russell Part II:
<This is one of the basic reasons why we are currently experiencing what I term the "stealth" bull market in gold. I call it a "stealth" bull market because it hasn't been recognized as a bull market -- yet. The conventional wisdom, assuming that anyone notices what's happening to gold and silver at all is, "Well, yeah, there seems to be some inflation, and maybe that's why gold and silver are rising."
Sure, gold and silver are sensitive to inflation, and that IS one reason the precious metals are rising. But the bigger reason is that looking ahead we can visualize the crushing pressure that is due to hit the US dollar (we're seeing the beginning of it now).
The way events are going, the way the US government is spending, the way the trade balance and the current account balance are going, in a few months, a year, two years (I don't know exactly when), the dollar could become an unwanted currency -- or the dollar could just become something with which our foreign creditors can buy up US assets.
I look at the stock market breadth, which has been very good, and I equate this with the bullish sentiment of the average investors. "Sure, business looks good and getting better, so listen baby, I'm buying stocks."
But the Dow and the S&P are big-capitalization averages, and I place the sophistication of buyers of both Dow and S&P stocks above those of the average retail buyer. The Dow and the S&P made their highs almost a month ago on November 3. Why aren't the Dow and the S&P surging to new highs along with breadth? My theory is that sophisticated and
knowledgeable investors are looking ahead, and they don't like the picture that they are seeing.
Sure, the Dow and the S&P could confirm the advance-decline ratio this week or next, but they certainly are lagging, and the above explanation could be the reason why.
What to do, dear subscribers, what do we do? My answer is that we go where the strength is, and right now the strength is in the precious metals. I'm not just saying this, my relative strength charts are telling me that gold and silver are outperforming the Dow and the S&P.
Furthermore, common stocks have been rising in a liquidity-driven upward correction in a bear market. At the same time, the precious metal stocks have been rising in the early part of a new bull market. I'll always choose to put my money early in a bull market rather than in an upward correction in a bear market. It's just correct investment procedure.
The P&F chart below shows gold in a clear bullish trend holding above the blue rising trendline. We see a consolidation taking place during late-2002 to the present, and then the most recent breakout of gold as it filled the 396 box. Having touched the 400 box, gold has now clearly broken out of its massive consolidation pattern. How high gold may go from this latest breakout remains to be seen. But any way you look at it, gold is clearly long-term bullish. A primary bull market is in progress.> |
